Tim Hortons escalates fight with dissident franchisee group

The battle between the parent company of Tim Hortons and a group of rebellious franchisees heated up over the holiday weekend when the company abruptly seized the restaurants of the group’s leader just three days after the franchisees had complained about coffee pots that shattered.

David Hughes, a Tim Hortons franchisee in Lethbridge, Alta., said in an interview that parent Restaurant Brands International Inc. changed the locks on all of his four restaurants on Sunday at 5 p.m. local time, calling him just five minutes before to alert him that he was being pushed out.

Mr. Hughes, who is president of the Great White North Franchisee Association − which was formed more than a year ago to represent unhappy Tim Hortons restaurant owners in what they call mismanagement of the chain − said he is considering all his options, including seeking a court injunction against RBI to get back his stores.

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Tensions have been rising since late 2014 when Brazilian private equity firm 3G Capital, known for its tight-fisted management style, acquired Tim Hortons and merged it with its Burger King chain to form RBI. A growing number of franchisees have complained that cost-cutting measures are hurting the brand and franchisees’ bottom line. The chain has grappled with lacklustre sales growth despite strong profit gains at the parent company, prompting Tim Hortons to hire new executives and introduce a flurry of new initiatives, such as all-day breakfasts.

But it still struggles with some disgruntled franchisees.

"I’m mad,” Mr. Hughes said on Monday. “I’m mad because everything we’ve done up to now with the Great White North Franchisee Association is all about doing the right thing … this is their way of getting at me and my board. They’re trying to get rid of the association, which is against the law. We have a right to associate.”

The company, however, denied that Mr. Hughes’s removal is tied to his position with the association.

RBI spokeswoman Jane Almeida confirmed that Mr. Hughes, a franchisee since late 2004, no longer owns any of the chain’s restaurants.

She said Mr. Hughes violated his franchise agreement, which doesn’t allow a restaurant owner to share confidential company information with the media; disparage the company or the Tim Hortons brand in the media or with community partners and vendors; or ultimately harm the Tim Hortons brand “in any way.” She did not provide further details, saying they were disclosed to Mr. Hughes in his termination documents.

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Mr. Hughes’s removal during the Labour Day long weekend follows the departure last month of another long-time Tim Hortons franchisee who was active in the association.

RBI settled a lawsuit with franchisee Mark Kuziora of Toronto under an agreement that saw Mr. Kuziora sell his two restaurants back to RBI for an undisclosed amount. In the spring, Mr. Kuziora had sued the company after it said it would not renew one of his two restaurant licences, blaming food-safety violations and other operational shortcomings.

In its latest spat last week with RBI, the association invoked one of its earliest complaints – that coffee and tea pots were exploding, injuring some restaurant owners or their employees.

Last week, an industry source sent media outlets, including The Globe and Mail, a copy of a letter from its lawyer, Peter Proszanski of Himelfarb Proszanski, to RBI warning again of its “serious concerns” about the health and safety issues surrounding shattering coffee and tea pots. “Injuries include without limitation, burnt thighs, feet and genitals,” Mr. Proszanski wrote.

“We trust that you will set aside any differences you have with GWNFA to advance the health and safety of the hard-working employees who are the face of the Tim Hortons brand,” he wrote. He said if he did not get a reply by Sept. 7 the association would consider it a green light for franchisees to purchase coffee and tea pots from suppliers other than those they must buy from head office.

The company has denied that the pots the franchisees are required to use have been shattering and injuring employees.

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RBI has refused to acknowledge or deal with GWNFA, instead saying that it communicates with franchisees through its elected advisory board.

Lou Gossner, chairman of the franchisee advisory board, said in an e-mail he’s unaware of the details of Mr. Hughes’s removal, but the board supports the company’s decision to terminate him.

The board “recognizes that it is unfortunate when a situation ends in the termination of a franchisee’s licence agreement,” said Mr. Gossner, a franchisee in Saskatchewan.

“It is because we represent all franchisees that we support the rare instance where it is necessary for the company to remove an owner from the system in order to protect the best interests of the brand and the thousands of Canadian franchisees and team members whose livelihoods depend on it every day,” he said.

The association, however, says the advisory board simply rubber stamps the company’s decisions.

Ms. Almeida said Mr. Hughes’s four former restaurants are remaining open and under corporate management until a new franchisee is chosen to own and operate them.

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Alex Macedo, who took over as president of Tim Hortons in December, is open, accessible and willing to address all issues brought forward by franchisees, Ms. Almeida said.

The company would not disclose financial details of Mr. Hughes’s termination. He said the company would have to pay him “fair market value” for his restaurants.

Editor’s note: An earlier version of this story incorrectly said the association sent media outlets a copy of a letter from their lawyer. In fact, an industry source circulated the letter. As well, an earlier version incorrectly said the Tim Hortons franchisee was in Lethbridge, Ont. In fact, he is located in Lethbridge, Alberta. This story reflects the corrections.

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